JetBlue takeover appeal grows with AMR merger in limbo

JetBlue Airways Corp. may become a takeover target for AMR Corp.'s American Airlines or US Airways Group Inc. if federal regulators succeed in derailing their merger.

The U.S. Department of Justice sued two weeks ago to block the creation of the world's biggest carrier, saying it would reduce competition and boost fares. Without the $12.1 billion deal, both airlines could turn their sights to JetBlue, whose smaller size makes it less likely to raise antitrust issues while also offering a base in New York, the busiest air-travel market, said JetBlue shareholder Eagle Asset Management Inc.

JetBlue announced in April that it would launch service from Worcester Regional Airport to two vacation destinations in Florida. The airline would be the first in Worcester since Direct Air pulled out after a financial collapse in March 2012.

While buying JetBlue would do less to close the gap with larger rivals, shareholder Disciplined Growth Investors Fund said the airline remains one of the more attractive candidates left in an industry shrunk by mergers and beset by bankruptcies. With a market value of $1.8 billion, the company may be vulnerable as its shares trail an index of the largest U.S. airlines by the most since 2006, according to data compiled by Bloomberg.

JetBlue "would be a pretty appealing strategic asset for both of those companies in the event that the merger does fall apart," Eric Mintz, a fund manager at St. Petersburg, Fla.-based Eagle Asset, which oversees about $10 billion, said in a phone interview. "You get a much bigger East Coast presence."

JetBlue "doesn't think size determines success," Jenny Dervin, a spokeswoman for the New York-based company, said when asked about the possibility of teaming up with American or US Airways. "By virtue of JetBlue's position in the industry, we believe we can continue to grow profitably and sustainably, through organic growth and strategic partnerships."

JetBlue may be more vulnerable to takeover interest with its shares lagging behind peers. The stock trailed the Bloomberg U.S. Airlines Index by 30 percentage points in 2013 through Tuesday, the worst year-to-date underperformance through Aug. 26 in seven years, data compiled by Bloomberg show.

Deutsche Lufthansa AG agreed to buy a stake in JetBlue in 2007 and became its biggest shareholder, then said in November 2011 that it no longer considered the holding to be a strategic asset.

"It is mere speculation, and we don't comment on any speculation," Nils Haupt, a Lufthansa spokesman in New York, said about JetBlue as a potential acquisition target. The Cologne, Germany-based airline holds about a 17 percent stake in JetBlue.

JetBlue, the sixth-largest U.S. carrier in terms of miles flown by paying passengers, says it has 850 daily flights, about 19 percent of which originate at New York's John F. Kennedy International Airport. That New York gateway may appeal to larger companies, said Fred Martin, the Minneapolis-based president and chief investment officer of Disciplined Growth.

American could use JetBlue to ferry passengers from across the U.S. to the AMR unit's international hub at JFK. American routes most of its New York domestic traffic through LaGuardia Airport.

If its merger with US Airways is blocked, a deal with JetBlue could help American bolster a network that lags behind those of larger competitors, analysts Savanthi Syth and Jim Parker from Raymond James Financial Inc. said in an Aug. 16 note to clients.